Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million can diagnose. -John Maynard Keynes
As we enter another economic inflection point, the global currency crisis and murmuring of massive inflation is getting more ink in the mainstream. Everybody knows that every debtor nation’s central bank is working overtime to default through devaluation of the currency. When you’re on the hook for tens of trillions in bond repayments, entitlements and interest with no real hope of making good, then of course your goal is to pay those obligations in the future with much cheaper money. At the same time, you rob from creditors and savers starved by artificially low interest rates with pushing them to plunge their eroding funds into the (P&DCM 500) Pump-and-Dump Casino Markets thinking it is better to buy expensive companies at low yields than bankrupted government promises. Of course the negative impacts of inflation fly in the face of the constant central bank mantra to inflate at all costs.
Now that “everybody” knows we’re doing to dive head first into massive inflation, you still have a full set of deflationary forces at work including a foreclosure/contracts/MERS freeze threatening 10’s of Trillions in debt instruments, China, loss of incomes, the Internet, unemployment and a massive government debt bubble due to governments and central banks assuming mountains of private debt since 2008. But this is all window dressing for the ultimate con:
That the currency itself is debt and that any talk of paying down the debt is foolish because from the onset of issuing an interest-bearing debt-based currency, you ensure that there will never be enough currency in existence to repay the principle plus interest.
Since the financial collapse, Charles Smith has made some good arguments on why 10's of trillions in asset deflation can defeat the most aggressive central bank policies, but makes some critical distinctions between inflation and currency devaluation in his Hyperinflation Is a Political Process essay. These points are worth emphasizing.
He brings up the key difference between purely fiat and credit-based currency systems, a point that often gets lost in the constant printing press banter where the implications of debt as currency get lost sometimes. So yes, we need to be careful to distinguish between "too much money chasing too few goods" and the amount of credit in the system, since credit can be a case of pushing on a string if no one borrows in a fractional reserve system. In other words, you can’t force people to take loans, BUT you can continue to destroy the currency.
The end result for most folks is that each Federal Reserve Note (FRN) gets you less of what you need because commodities act like a sink for a credit source that refuses to expand, at the same time that each FRN gets harder to come by for loss of income as a result of the deflationary effect of no "money" expansion.
While I couldn’t agree more than we need to end the Fed, against what promises to be a chaotic political backdrop on the ashes of God only knows what type of social and economic turmoil we'll be facing several more years down the road,we need to make sure the new devil we create isn’t worse than the old devil from Jekyll Island that we’ve known since 1913. If you end the Fed, but don’t end the fractional reserve debt-based currency system, you have accomplished nothing. Inevitably, the result would be that power would only be nominally transferred to another Keynesian Creature under the thumb of the same financial elite IMF/BIS establishment promising to bring an order from chaos.
When you talk of a true national central bank, as the expression goes, you must be careful what you wish for. A true central bank is a lesser of two evils because you can’t have sovereignty without control of the money supply. As it stands, we have financial tyranny of the oligarchs (“give me control of a nation’s money and I care not who makes the laws”) and what Alexis de Tocqueville referred to as tyranny of the majority through politicians pressured for entitlements, bread and circus. In theory, a central bank helps with the first matter, but not the second. It is still politically convenient to print money instead of tax.
The only certainty is that any instrument of government financial power will be compromised by the financial elite and abused by politicos in the same ways they always have been, so new powers must be limited. If and when we do End the Fed, Congressional monetary control should remain limited, the Legal Tender laws should be repelled freeing up private parties to except other forms of payment, 100% reserve requirements be required, Federal Reserve Notes should be relegated to a government script (e.g. tax payments) and legitimate Constitutional definition for Dollar be re-established.
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